If the number of substantially identical securities you purchase 30 days before or after the sale is more or less than the number of securities you sold, you must match the securities bought with an equal number of shares sold, in the order you bought them. These matched securities are the ones that are subject to the wash sale rules. You cannot deduct a loss on the securities sold in the wash sale that are matched with substantially identical securities acquired 30 days before or after that date. But you can deduct the loss for the portion of the sale that corresponds to securities that were not matched. And, the basis of substantially identical securities you purchased, that were not matched with the securities sold in the wash sale, will be proportionally increased for the amount of the loss you could not deduct.
For example:
You bought 100 shares of common stock A on September 18 at $40 a share, for a total of $4,000.
On November 10 you bought 50 shares of substantially identical stock at $42 a share, for a total of $2,100.
On November 20 you bought 25 shares of substantially identical stock at $38 a share for a total of $950.
On December 1 you sold the 100 shares you bought in September for $30 a share, resulting in a loss of $1,000.
Because you bought 75 shares of substantially identical stock within 30 days before the date of the sale, you cannot deduct the loss on those shares ($10 a share loss x 75 shares = $750). You can deduct the $250 loss on the other 25 shares.
The basis of the 50 shares you bought on November 10 is increased by two/thirds (50/75) of the disallowed loss ($750 x 2/3 = $500), so the basis of those shares would be $2,600 ($2,100 + $500), or $52 per share.
The basis of the 25 shares you bought on November 20 is increased by one/third (25/75) of the disallowed loss ($750 x 1/3 = $250), so the basis of those shares would be $1,200 ($950 + $250), or $48 per share.
Losses and Gains on the Same Day
Losses from a wash sale of a block of securities cannot be used to offset gains from the sale of other blocks of substantially identical securities on the same day.
For example:
You buy three blocks of 100 shares each at different times of the year. You paid $140 per share for the first block, $120 for the second block, and $110 for the third block.
On December 2 you sold 300 shares at $125 per share.
On December 30 you buy 250 identical shares of the stock,
You cannot deduct the loss of $1,500 on the sale of the first block ($12,500 - $14,000) because you acquired substantially identical shares within 30 days after the sale.
You cannot use the loss on the first block of stock to offset the gains on the second two blocks, because the sale of all the stock was made on the same day.
Wash Sales and Options and Futures Contracts
Losses from sales or trades of options to buy securities are also subject to the wash sale rules, just as the underlying securities would be. But the wash sale rules do not apply to losses from sales or trades of commodity futures contracts and foreign currencies.
Losses from the sale, exchange or termination of a futures contract to sell are normally treated the same way as losses from the closing of a short sale.
Reporting Wash Sales
Even though a loss on a wash sale is not deductible, it must still be reported on Schedule D, Capital Gains and Losses, in either the short-term or long-term section, as applicable. The amount of the loss should be shown as a negative number and on the line immediately below it, you should write “Wash Sale” in column (a) and show the amount of the loss in the amount column as a positive number, offsetting the negative amount of the loss.